Employee stock ownership

Employee stock ownership, or employee share ownership, is where a company's employees own shares in that company (or in the parent company of a group of companies). US employees typically acquire shares through a share option plan. In the UK, Employee Share Purchase Plans are common, wherein deductions are made from an employee's salary to purchase shares over time.[1] In Australia it is common to have all employee plans that provide employees with $1,000 worth of shares on a tax free basis.[2] Such plans may be selective or all-employee plans. Selective plans are typically only made available to senior executives. All-employee plans offer participation to all employees (subject to certain qualifying conditions such as a minimum length of service).

Most corporations use stock ownership plans as a form of an employee benefit.[3] Plans in public companies generally limit the total number or the percentage of the company's stock that may be acquired by employees under a plan.[4] Compared with worker cooperatives or co-determination, employee share ownership may not confer any meaningful control or influence by employees in governing and managing the corporation.

In the United States, private companies often use employee share ownership to maintain the political feasibility of the founding business plan and culture after the founders have left. Generally, the most senior employees own a majority stake and represent the leading voice in the company that employs them. They may be required to sell back the shares upon leaving the company.

A number of countries have introduced tax advantaged share or share option plans to encourage employee share ownership.

Types of plan

To facilitate employee stock ownership, companies may allocate their employees with stock, which may be at no upfront cost to the employee, enable the employee to purchase stock, which may be at a discount, or grant employees stock options. Shares allocated to employees may have a holding period before the employee takes ownership of the shares (known as vesting). The vesting of shares and the exercise of a stock option may be subject to individual or business performance conditions.

Various types of employee stock ownership plans are common in most industrial and some developing countries. Executive plans are designed to recruit and reward senior or key employees. In the U.S. and the UK there is a widespread practice of sharing this kind of ownership broadly with employees through plans in which participation is offered to all employees. The tax rules for employee share ownership vary widely from country to country. Only a few, most notably the U.S., the UK, and Ireland have significant tax laws to encourage broad-based employee share ownership.[5] For example, in the U.S. there are specific rules for Employee Stock Ownership Plans (ESOPs). In the UK there are two all-employee tax advantaged plans that enable employees to acquire shares: the Share Incentive Plan and the Sharesave share option plan.

Varieties of employee share ownership plan (including associated cash based incentive plans) include:

Employee ownership

Employee ownership is a way of running a business that can work for different sized businesses in diverse sectors.[6]

Employee ownership requires employees to own a significant and meaningful stake in their company.[7] The size of the shareholding must be significant. This is accepted as meaning where 25 percent or more of the ownership of the company is broadly held by all or most employees (or on their behalf by a trust).[8] There are three basic forms of employee ownership:[9]

In addition, the employees' stake must give employees a meaningful voice in the company's affairs by it underpinning organisational structures that promote employee engagement in the company.[10]

Employee ownership can be seen as a business model in its own right, in contrast to employee share ownership which may only provide selected employees with shares in their company and an insignificant overall shareholding.

By country

See also

• Center on Business and Poverty
• Co-determination
• Worker representation on corporate boards of directors
• Cooperative
• Worker cooperative
• Economics of participation
• Employee benefit trust
• Labour law
• List of employee-owned companies
• Market socialism
• Social ownership

Further reading

• Curl, John (2009) For All The People: Uncovering the Hidden History of Cooperation, Cooperative Movements, and Communalism in America, PM Press, ISBN 978-1-60486-072-6